September 2016 - In August 2016, the National Bank of Ukraine (NBU) adopted several regulations that are expected to simplify cross-border finance transactions for Ukrainian businesses.
On 11 August 2016, the NBU adopted Resolution No. 368, which with effect from 18 August 2016, amended Regulation on Procedure for Borrowing of Foreign Currency Loans by Ukrainian Residents from Non-residents and Extension of Foreign Currency Loans by Ukrainian Residents to Non‑residents, No. 270, dated 17 June 2004.
The amendment aims to streamline currency control regime applicable to loans of Ukrainian importers covered by foreign export credit agencies. In particular, the NBU now expressly permits a Ukrainian borrower to apply the proceeds of a loan to reimburse a non-resident lender against the costs of ECA coverage, insurance expenses, legal fees and other project-related expenses, provided that the non-resident lender is either a bank in a jurisdiction with an A-rating from one of the major credit rating agencies or an international financial organisation. In the past, a similar reimbursement payment required permission of the NBU issued according to a cumbersome procedure.
Conversion of foreign debt into equity
On 23 August 2016, the NBU adopted Resolution No. 375, effective 1 September 2016, which introduced changes to Regulation on Addressing the Situation on Money, Credit and Currency Markets in Ukraine, No. 342, dated 7 June 2016 as well as further amended Regulation No. 270 described above.
Previously, Regulation No. 342 prohibited a Ukrainian borrower from prepaying a foreign currency loan extended by a non-resident lender, unless the loan fell under any of the exemptions set out by Regulation No. 342. The recent amendment now also allows Ukrainian borrowers to prepay foreign currency loans, where prepayment is made by means of conversion of the principal amount of the loan into shares (or participatory units) in the charter capital of the borrower issued in connection with its increase.
USD 500,000 threshold for NBU 30-day risk assessment
Under Regulation No. 270, a loan agreement between a Ukrainian borrower and a non-resident lender may not enter into effect earlier than the date of its registration at the NBU, subject to some exceptions. Ordinarily, the registration process must be completed within 14 business days. Previously, the NBU could extend this by another 30 calendar days for the risk assessment purposes if the transaction satisfied any of the foregoing criteria:
- a party to the transaction is a publicly exposed person or a person related to a publicly exposed person;
- the borrower under a loan agreement with a principal amount exceeding USD 500,000 or its equivalent in another currency is a Ukrainian national;
- in relation to a loan agreement, the lender’s rights have been assigned, or the borrower’s obligations have been transferred, to another person;
- the initial NBU registration of the loan agreement was cancelled;
- the loan agreement provides for disbursement of the loan by way of direct payment to the non-resident supplier of the Ukrainian borrower; or
- a Ukrainian bank as the original lender has assigned its rights under the loan agreement to a non-resident.
With effect from 1 September 2016, according to Resolution No. 375, the NBU is allowed to delay the registration of a loan agreement that meets any of the above criteria for additional 30 calendar days only where the principal amount of the loan in question exceeds USD 500,000 or its equivalent in another currency.